Schools likely to bear brunt of a budget fix

  • Article by: ERIC ROPER , Star Tribune
  • Updated: July 9, 2011 - 10:43 AM

Budget negotiators want to delay 40 percent of state payments to districts.

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On July 7th, 2011 at Central Presbyterian Church, the bulletin board echoed the sentiments of many Minnesotans during the government shutdown.

Photo: Richard Tsong-Taatarii, Star Tribune

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Budget talks have produced few clues about how Minnesota's historic government shutdown will end, except for one: Schools likely will pay the price for yet another stalemate in St. Paul.

Every public proposal by the governor and GOP lawmakers since the run-up to the shutdown has used delayed school payments to drive down the state's $5 billion deficit -- at least temporarily. It is the same one-time accounting gimmick that has propped up the budget for the past two years, though state leaders have proposed expanding it.

"It's like hitting kids in places where the bruises don't show," said Charlie Kyte, executive director of the Minnesota Association of School Administrators.

The technique is labeled a "shift" in Capitol parlance, though some in the education arena prefer the less politically benign "hold back."

Under the plan, the state gives schools a slice of their annual aid payment and guarantees to pay the rest in the following year. That forces schools to raid cash reserves or borrow money to make up the shortfall, which will be erased when the state returns to normal funding.

Gov. Mark Dayton said this week that he was proposing it because "we're out of desirable options" to solve a budget morass that has pitted a Republican legislative majority that opposes taxes against a governor who wants to raise revenues.

Senate Majority Leader Amy Koch, R-Buffalo, said it is "safe to say nobody's really excited about it; no one likes it," but it remains on the table.

"The law says it has to be paid back, but the question is when?" asked Rep. Mindy Greiling of Falcon Heights, the DFL lead on the House Education Finance Committee. "In the next century?"

A $2 billion delay

Schools already receive 70 percent of their normal payments, with an unprecedented 30 percent delayed. Dayton and GOP lawmakers both have proposed lowering that to 60 percent, bringing the total shift to more than $2 billion.

"We're carrying the IOUs for the state of Minnesota, rather than the other way around," said John Thein, superintendent of the Roseville School District.

Roseville borrowed $5 million to cover the last shift and another $11 million this spring to cover shutdown costs and further shifts.

Beyond the impact on schools, financial analysts say it is unwise fiscal policy. Fitch Ratings cited the state's school shifts as a key factor in its downgrade of Minnesota's bond rating Thursday, noting that it leaves a larger deficit down the road.

"If that's your only way of figuring out the budget ... you're going to have another budget problem in two years," said Grace Keliher, a lobbyist with the Minnesota School Boards Association.

For many school districts, the shift does not translate into direct classroom cuts, because some have hefty reserves and can borrow at very low interest rates. But it does have other, more subtle effects.

"We're really not able to make good long-term decisions when we don't know what's going to happen from year to year," said Peggy Ingison, Minneapolis schools' chief financial officer. "As long as there's uncertainty, we're saying, 'We're not going to do this,' or 'We're not going to do that.'"

Minneapolis has had enough money on hand to cover the shift so far, but districts such as Rosemount-Apple Valley-Eagan borrowed for the first time to make up for the shortfall. Finance Director Jeff Solomon said it likely would need another $20 million loan to cover a 60 percent shift.

"It would increase our reliance and dependence on short-term cash flow borrowing," Solomon said.

Charter schools

The hardest hit, however, would be charter schools. While they make up a small chunk of education funding, charters do not have the state's guarantee to obtain low-interest rates or the cash reserves of large school districts.

"Increasing the shift payment on the charter schools is going to put some of them out of business," said Rep. Pat Garofalo, R-Farmington, chairman of the House Education Finance Committee. He said if there is an expanded school shift, which he believes Republicans will no longer support, he will fight to exempt charters.

Brian Sweeney, with Minneapolis-based Charter School Partners, agrees that "there are those that would not make it, I believe. They truly are on the bubble and this really pushes them over the edge."

Paul McGlynn, executive director of the Sobriety High charter school, already has cut hours for several of his 18 staff members. Expanding the shift would mean deeper cuts.

"It would force us to cut back staff where we've already cut back, so it definitely impacts the students and education," McGlynn said.

Staff writer Norman Draper contributed to this report. Eric Roper • 651-222-1210 Twitter: @StribRoper

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